Now, of course, valuation is an excellent guide to long-term returns, and a terrible guide to short-term returns. This means that in the short term there is observational equivalence between being early and being wrong. I am regularly told either that valuation is irrelevant (or my favoured measures are irrelevant), or asked what the catalyst for a decline would be.
As I have confessed on prior occasions, I seem to be afflicted by a rare form of Tourette Syndrome, where I am compelled to tell the truth, and so I reply that I have no idea what the catalyst will be. Indeed, think back to the tech bubble of the late 1990s (or any other previous bubble for that matter). Can anyone tell me the catalyst for the market having a Wile E. Coyote realisation? I can’t, even with the benefit of 18 years of 20/20 hindsight.
In many ways, valuation seems to suffer Cassandra’s curse. For those who may have forgotten the tale, Cassandra was a priestess in the temple of Apollo. Apollo himself took a shine to Cassandra and decided to woo her, or more precisely to seduce her. In pursuit of his fancy, Apollo granted Cassandra the gift of prophecy in an attempt to win her over. However, Cassandra was a very chaste priestess and spurned Apollo’s advances. Being a typical capricious and vengeful God, Apollo didn’t handle rejection well, and cursed Cassandra. Rather than rescind his gift of prophecy, he ensured that Cassandra’s prophecies, whilst true, would never be believed. Valuation suffers a similar curse…just when it is most informative, it is least believed.Montier thinks well, and writes well. The whole piece, titled "The Late Cycle Lament," and dated December, 2018, is online.